The public relations republic

Let me dare to predict how regulatory and corporate India will resolve IT major Satyam’s scandal/saga. The government will stand tall, its arms and branches spread out in never-ending enquiry, to provide tactical cover. Some fall-guys might be found: now-disgraced chairman B Ramalinga Raju could be sentenced, as could the auditing company official who signed the accounts; but it takes time to prove guilt, so that they will probably live a retired life in the comfort of their homes, out on bail. Meanwhile, the media will bray for blood. Corporate India honchos, particularly Satyam’s competitors, will jump out of TV screens, express disgust and shock. But each will shrug the incident off as a one-rogue affair and quickly put a lid on the issue. Soon, it will be business as usual; that is, creative accountancy and cover-up by using corporate image-fixers. The media, too, will fix itself. And Satyam will not lead to change.

But why should I, an environmentalist, worry about corporate (mis)governance? The reason is simple: it is clear corporate India, today working its way to development, is doing so at the cost of the environment and the livelihood of the poor. It is also clear such damage can be minimized if industry works within a strict, vigilant and credible regulatory system. In other words, industrial growth need not necessarily be destructive of the environment. But this challenge of the balance can be managed only if policy is public, regulatory institutions are made and kept strong, and democracy deepened.

So what do we find behind this scam to see the ‘nature’ of the cover-up? Satyam did everything by the best of global books and principles. It had process-loaded internal systems and an army of internal auditors. It had hired one of the world’s most reputable external auditors, M/s Pricewaterhouse Coopers, to check and validate its accounts. It had highly credible independent directors on its board, to ensure best practice. Not surprisingly, the company received the prestigious Golden Peacock Award in 2002, from a jury made up of the world’s big and famous, for its work—believe it—on corporate governance. In other words, it polished its image, in a world of make-believers, to perfection.

This is the problem in today’s dominant system. It is about form, not substance. It can work its shine because the agencies responsible for credible action have been degraded, debilitated. It has madly backed the expensive business of public relations, making the media, democracy’s watchdog, toothless.

We need to crack this problem. Let us be clear, companies today hire the biggest auditing companies and hi-fi consultants not because they want the work done diligently but because the latter have the public image and the public-relations wherewithal.

A few years ago, my colleagues, investigating the sale of carbon credits under the Clean Development Mechanism (cdm), found the auditing agencies hired to certify the project were indulging in nothing less than fraud. They were simply cut-pasting parts of different reports, dealing with different projects, to get their clients certified. The auditor, in this case, happened to be the same Satyam-soiled agency, Price waterhouseCoopers; equally acclaimed Ernst and Young were also involved.

When we published our findings, we indicted the cdm process more than the auditors. The international community, in this case, has designed a process in which the project proponent hires a consultant to do the project design and the same company hires a validator agency to certify the project report its own consultant prepares. The Bonn, Germany-based cdm board authorizes a select number of validators it believes are world class. It can ‘trust’ these processed reports, all of which are paid for by the project proponent. In addition, the board has made convoluted rules to determine which project can qualify its criterion for ‘additionality’—projects that are more than business as usual in its books.

The obfuscation in the procedure makes it important to hire a big fish certifier who knows the ropes. Result: a flourishing business for creative carbon accountants. This adds to the transaction cost of getting cdm projects cleared—the price is so high it excludes large numbers of smaller companies and communities, who should actually be doing projects to mitigate greenhouse gas emissions. The system is made for complicity, profit and big business. But the form is perfect; who cares about the substance.

The national system for environmental impact assessment (eia), to provide another example, is no different. There have been cases, reported in this magazine again and again, of consultant companies preparing fraudulent documents. But not a single agency has been publicly blacklisted. Not one project proponent has been sent to prison for fudging books to get clearance.

What encourages this system, fundamentally, is the lack of scrutiny. What emboldens it, forever, is the lack of penalty for misdemeanour. But this is not an accident. This is the result of deliberately changing the nature of India’s democracy, by weakening institutions responsible for oversight and regulation.

Perhaps this is about a changing phraseology; describing the democracy that is being spawned in India. There exists ‘banana republics’; but now there we need to add to our lexicon, the ‘Public Relations (PR) democracy’—where problems merely require the right kind of gloss.

Satyam is a crack in this system. But are we willing to prise it open? When will we be?